Pop, Fizz... A Tale of Two Floats

Back in May, Australian personal injury law firm Slater & Gordon (ASX:SGH) captured attention as the first law firm to float on a public exchange. Listed at a dollar per share, S&G popped on day 1, up about 40% and since then has risen more than 80% above its listing price (A$1.80+ by the end of August).



This month, another Australian firm, Integrated Legal Holdings (ASX:IAW), also listed, no doubt hoping for similar results. But for reasons not yet clear, ILH has so far proved to be a fizzer. Despite being oversubscribed, ILH has suffered a steady slide, down from its original issue price of 50 cents, closing around 35 cents by the end of August (a fall of about 30%).

What's the difference?

ILH did float on a jittery day for the Australian markets. But since that day the overall market index is up, and ILH is well and truly down.

ILH may be a little more confusing to investors, as a roll-up of three small law firms and an online legal service. These are hard to value alone, let alone bundled together, so investors may be discounting the business until they see some results. Investors may also think that a legal business should stick to what it does best, ie, legal work, rather than trying to build its own document assembly system (but we would say that, wouldn't we).

For law firms wondering if the public markets are paved with gold, the evidence, so far, is mixed. But we can report that the Australian sky has not yet fallen down.

Show Me The Business Case

If you think document assembly is the ant's pants and you're keen to roll it out to your business, be prepared. There's one question that always comes up, and you'll need a good answer.

"What's the business case?"

This question is the corporate equivalent of "show me the money" and your answer will need to be a little bit more elaborate than simply declaring that "it's hot". That line only works for Paris Hilton.

In our experience, there are three scenarios where the document assembly business case is particularly strong. If your business fits any of these, you should have a good shot at making things happen. If not, try to find a part of the business that does.

Business Case #1 - Bottlenecks are losing you sales

This one is pretty obvious. If you need to produce written proposals, letters or contracts to close a sale, and there are bottlenecks somewhere in your process, then you are probably losing sales. A classic case is where final sales contracts must be drafted or approved by legal, but legal is so snowed under that some deals get stuck for weeks. Even if the sales team is allowed to create some documents themselves, the amount of time wasted cutting and pasting in Word means less time out selling and less time to grow the pipeline. And the longer it takes to close a deal, the greater the risk that your customer will shop around for a better one. Fixing these problems should have a clear and measurable pay-off that even the cynics will love.

Business Case #2 - Non-compliance means pain

There are rules for just about everything we do, and sometimes, it hurts if you break them. Each year, legislators pump out thousands of new laws, and regulators pump out thousands of new regulations. So, if you work in a heavily regulated business, and you need to produce contracts and other documents that comply with all the rules, then document assembly can make your life a whole lot easier (and a whole lot less painful, too). A classic case is government procurement, where mistakes in RFP documents might open the door to costly challenges from disgruntled bidders, or force you to start the process all over again. It's all about the pain, really. If a botched document has a probability of X and causes Y pain, the business case will be pretty clear.

Business Case #3 - Costs high, margins squeezed

This last scenario has two important ingredients. First you must have high document costs, typically because everything is being drafted by hand. And second, you must care. When costs are high, but someone else is paying, who really cares? High costs are only a problem when you can't easily pass them on to someone else. Which is why document assembly only really appeals to lawyers and other professionals who are facing margin squeeze. If your clients start asking for fixed prices, and your margins start to disappear, the case for document assembly is very strong. It might be the difference between staying in that line of business (and still making money), and losing it altogether.

Alternative Fees are Like Teenage Sex

This might well be the quote of the year:

Alternative fees are like teenage sex. There are more people talking about it than doing it. And those that are doing it don't know what they're doing.

Jeffrey Carr, general counsel at FMC Technologies

For the latest on the the much-talked-about death of the billable hour, check out this Law.com article:

Are Big Firms Warming Up to Alternative Fee Deals?